Peru Keeps 2.75% Rate as Mining Woes Undermine GDP Growth

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Peru kept borrowing costs at an eight-year low as global trade tensions add to concern about sluggish domestic growth amid falling exports.

The central bank board, led by its President Julio Velarde, kept the benchmark lending rate at 2.75% for a 14th consecutive month Thursday, as forecast by all 11 economists surveyed by Bloomberg.

Peru’s economic growth is below potential though sectors of the economy tied to internal demand continue to show signs of dynamism and signal a gradual closing of the output gap, the board said in a statement accompanying its decision. Risks to global growth remain, it said.

Policy makers continue to apply stimulus amid a bumpy recovery in the mining-dependent economy due largely to swings in copper production and public works. Growth slowed in the first two months of the year though Finance Minister Carlos Oliva this week said that growth will accelerate in the coming months, spurred on by infrastructure and mining investment.

“The second half of the year should see an improvement,” said Jorge Chavez, head of research company Maximixe Consult. “Consumer demand remains strong so there’s no need to pump more liquidity into the economy.”

April’s jump in the annual inflation rate, climbing to a 19-month high of 2.59%, was expected by the central bank, which sees inflation returning to 2 percent by year-end. The quickening of inflation trimmed Peru’s real interest rate to 0.16%, the lowest among Latin America’s biggest economies.

Inflation expectations climbed to 2.30% in April from 2.20%, according to a central bank survey.

Peru, the biggest copper producer after Chile, posted weak growth in January and February after metal output was affected by protests, rains and lower ore grades while outlays on public works plunged.

Mining dragged down overall exports, which fell for a seventh consecutive month in February.

Oliva forecast a turnaround in the coming months and stood by his forecast for growth of 4.2% this year, which would be the fastest since 2013.

The central bank forecasts 4% growth and sees the negative output gap persisting until next year.

In Thursday’s statement, the board reiterated its view that it’s appropriate to keep rate policy expansive while inflation expectations are anchored and economic activity is below potential.

--With assistance from Kristy Scheuble.

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net, Robert Jameson, Philip Sanders

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